Hanoi (VNS/VNA) – Good corporate governance often leads to good performancesand improves share prices and risk management for companies.

According to the International Finance Corporation (IFC), a member of the WorldBank, companies with good corporate governance report their return-on-equity(ROE) ratios are three times the ratios at worse-governed companies. The formeralso enjoy higher creditability ratings and are more developed.

That explains why companies with the best corporate governance results havealso recorded good corporate earnings in recent years.

In 2019, insurance-finance group Bao Viet, dairy producerVinamilk, DHG Pharmaceutical JSC, tech group FPT and HCM City Securities Corpwere among the listed firms with the best corporate governance reports.

Those companies also had the best annual reports and best sustainabledevelopment reports. Their earnings were also the highest and their stocks areamong the top 30 largest by market capitalisation and trading liquidity on thelocal market.

At those large-cap firms, the organisation of the board ofdirectors and sub-units has been changed to improve the quality of corporategovernance.

Vinamilk has eliminated its board of supervisors, which oftenstand independently from the board of directors. The company has set up asub-unit for the board of directors, which is called the internal auditingcommission.

The new unit will include independent board members, supervisorsof the board of directors and the board of managers.

According to Phan Duc Hieu, deputy director of the CentralInstitute for Economic Management (CIEM), the Law on Enterprise allows ajoint-stock firm to choose between two models of corporate governance.

The popular model applied by most companies in Vietnam involves theshareholders’ meeting, the board of directors, CEO and the board of supervisors.

This model has proven old-fashioned and not suitable for moderndevelopment as directors in some cases take advantage of their power tomanipulate the company while no one speaks against this.

A supervisory board is often established to make the corporate’sorganisational structure look good without practical power as the board isoften under the company's director at work, so it has no real power, Hieu said.

The other model, allowing a company to replace the supervisory board with aninternal audit commission, is popular in the US and UK. The commission makespublic announcements on corporate news so shareholders are aware of theirrights, benefits and obligations. This model also helps minimise the chance ofcorporate leaders abusing their power./.